Abstract:  The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and a non-traded good sector and unskilled labour is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We examine the effects of change in different factor endowments and of globalization on skilled-unskilled wage inequality. We find that the effect of a change of a factor endowment on wage inequality depends on the factor intensity ranking between two skilled labors using sectors and on the relative strength of the marginal effects on demand for and supply of non-tradable good. We also find that a decrease in the price of product produced by skilled (unskilled) labor using traded good sector lowers (raises) the skilled-unskilled wage inequality.